boom times for copper

Next year ABY could be well over $2 if copper stocks continue to decrease as this story below points out.


Shrinking mines spell boom times for Copper
We continue to feel very, very positive about the outlook for Copper, says Richard Adkerson, chief executive of the worlds largest listed Copper miner, FreeportMcMoran
Also, we here at LTN are extremely bullish on prospects for the Red metal.

The reason: Supply, the superstar Copper mines of the 1980s, such as Escondida in Chile, may have already seen their best days, and few believe there is enough new production coming on stream in the next few years to meet even modest demand growth.

Even if you make bearish assumptions about the global economic recovery, the copper market is still tight, says Max Layton, analyst at Macquarie in London. It looks as if most analysts agree. Indeed, out of 19 analysts polled last month, each one thought Copper demand would outstrip supply next year. Such a clear consensus is rare in commodity markets where data are sketchy and demand so dependent on economic growth.

For that reason, many analysts are predicting Copper could hit a new all-time high above US$9,000 in the next 12 months. Thats the easy call, the hard call is what month? says Mr Layton. He reckons March is the time. An increasing number see US$10,000 a tonne, a 35% increase on current prices, as a realistic possibility within the next few years.

The Copper markets tight fundamentals beyond the mist of the macro picture + realizing declining grades and producer under performance is increasingly the driving factor.

Leon Westgate, commodities analyst at Standard Bank, says: Pressure is certainly building on funds to try and make a return. Some of the guys who are bullish are looking to start building a position [in copper] now.

Current market tightness stems from years of disappointing production from the top copper miners. In the first half of the year, the worlds top four listed copper miners Freeport McMoran, BHP Billiton, Xstrata and Rio Tinto, saw their collective output drop 12% from Y 2009. State-owned Chilean miner Codelco, the Worlds largest copper producer, said in May it expected similar output in Y 2010 to the previous year.

Richard Wilson, chairman of Brook Hunt, the metals consultancy, says the copper mining industry has undershot production expectations by an average of 6% a year in the past 5 years. One of the key issues surrounding Copper supply has been the inability of Copper mines to meet their production targets, he says.

That is reflected in the physical Copper market with inventories lower at exchange registered warehouses. London Metal Exchange copper inventories have fallen more than 25% since February, bucking the usual trend to rise during the summer period.

Much of the problem comes from lower quality ore. After years of intensive output, many mines that were developed in the 1980s now produce ore with ever lower Copper content, meaning more and more earth must be moved to keep Copper output constant. Most mine projects will exploit the highest ore grades possible in their early years of production to facilitate rapid payback of capital. The trade-off then becomes sharply falling grades as mining progresses.

At the same time, 20 yrs of low prices meant little money was invested in discovering and developing new deposits. Because Copper mines can take as long as 15 yrs to start producing from the initial investment theres very little that the miners can do to deal with consumption growth in the next several years

And, in spite of fears over the strength of the Global economy, Copper demand has been robust, industry executives say. Tom Albanese, chief executive of Rio Tinto, said: We could have sold more Copper in the !-Half of Y 2010 if wed had it.